"Our outsized bets have been PSU banks which have done well and we think will continue to do well firms like Union Bank and Canara Bank and this is one of part of George Soros philosophy is the bigger the problem, the bigger the upside"ET Now | September 16, 2016, 08:17 IST

ET Now: What is it that you are looking to buy in the market ahead of the much awaited festive season?

Chakri Lokapriya: I think the fact that the festive season is advanced by about two or three weeks this year, the small ticket consumer durable items, banks continue to be a play. You will see a lot of increase in auto loans, various consumer durable loans which people take to buy these various items and so we are still having cyclical bend to our portfolio and I think these are the sectors that we are significantly overweight on right now.

ET Now: At the same time on Monday, every comment every sentence was centred around Fed. Today we are not discussing that?

Chakri Lokapriya: I think Fed is an overblown issue simply because of the fact that US unemployment rate has been at its lowest level for some time, personal spending is at the highest level, company’s balance sheets are strong and corporates are behaving responsibly. Against this backdrop of a strong US economy, the Fed wants at some point wants to try and increase rates to normalise the rate curve and that has been held back because of various unexpected events such as Brexit, China devaluing currency etc. etc. So from that perspective, I think eventually, not at the end of this year but towards early next year the Fed will hike rates and it should not really impact negatively at least as far as India is concerned.

ET Now: The tag line I always used for Maruti is sasta, sundar, tikau. It really works trust me.

Chakri Lokapriya: Indeed. If you look at the thrust of the government, currently it is the common man and if you look at where is biggest loan growth is happening which is auto loan growth, in the Rs 5 lakh-Rs 10 lakh price range. Also, there is an environment where the incomes will increase a lot sooner for people. So from that perspective, Maruti should continue to do well.

ET Now: Do you think Indian specialty chemical companies -- not all of them but some of them -- can scale up and become big?

Chakri Lokapriya: The answer is absolutely right because there are a couple of things happening which is a confluence technologies allowed these companies now to come up with a range of products so the range of n products now that they can cater to is much larger than it was before. FDA approvals or regulatory approvals are easier to get versus life saving drugs.

Against this backdrop, cost advantages are there. Second of course, commodity prices have fallen very sharply and so even if they rise, they still would not reach the levels of $120/ barrel. Against this backdrop, you have a US largely doing fine, emerging markets are recovering and so the demand for these guys should rise in the coming couple of years.

ET Now: Individually both these companies needed each other but markets are saying we are happy that you have come together but we are not happy to buy your stock?

Chakri Lokapriya: Eventually what will happen or it can happen in the telecom space is the survivals will become more brands than anything else. Today, there is no real brand equity in having an Airtel sim card or a Vodafone sim card. Eventually, when all the four different things you can have come under one brand, then that becomes more important eventually. You have two or three players eventually who will survive and they have become utility companies. So you do not buy them for growth, you buy them for utility but unfortunately given the huge debt levels that you refer to not just one company but across board for them to just have stronger balance sheets is going to take a long time.

ET Now: Is this a good time to be a contra buyer in telecom? We all know the bad news. I guess the paanwala on the street knows that Reliance Jio aa raha hai and there will be competition and we all know that is right but is it time to think differently?

Chakri Lokapriya: I would not think so for the reason that if you look at the other telecom companies even before Jio, they are sitting with huge amounts of debt. So, now in addition, they have to fight Jio. I do not see the balance sheets repairing anytime soon not at least in the next three years and that so from that perspective we do not see growth.

ET Now: I like to draw your attention to what is going on in the NBFC space. You have Bajaj Finance, Cholamandalam, Muthoot. What do you like within NBFC and where do you think money will be made within NBFC space?

Chakri Lokapriya: NBFCs all have had dramatic runs and the valuations have moved up. We have mentioned firms like Cholamandalam for that. They are the last mile kind of thing. A guy on the street who wants to buy his single truck, LCV truck because he sees near term demand. They are not forecasters.

If somebody comes to them and says will you transport goods from A to B for the next one year, they will go ahead and buy a truck. So those guys are actually quite reliable indicators in a sense that… and they do not overpay. They buy within their ability, there is no leverage buying. So that segment is looking nicer versus the Manappurams of the world whose valuations have run up and meanwhile their LTVs have also gone up to close to about 80 odd per cent. Now I am not an expert to say whether gold value will fall 20% or not from this level and that is the risk that you run.

ET Now: So do you like Cholamandalam?

Chakri Lokapriya: Yes, we have a small position in Cholamandalam.

ET Now: And what is your eventual target for a business like Cholamandalam?

Chakri Lokapriya: I think Cholamandalam will continue to grow in line with its multiple. I think actually the multiple also has a room to re-rate to more than 2.5 times going forward as a cycle expands.

ET Now: What is your outsized bet or two outsized bets which contribute to nearly 20% of your portfolio?

Chakri Lokapriya: Our outsized bets have been PSU banks which have done well and we think will continue to do well firms like Union Bank and Canara Bank and this is one of part of George Soros philosophy is the bigger the problem, the bigger the upside.

ET Now: George Soros is very bearish.

Chakri Lokapriya: He was…

ET Now: If you are calling his philosophy, then clearly you should short the market.

Chakri Lokapriya: Yes. Well he is less bearish today than he was and trouble companies follow a slightly different path.

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After PSU banks, the government is likely to infuse capital in two chronically ill telecom PSUs BSNL and MTNL, and the Union Cabinet is likely to take a decision on 4G spectrum allocation to them by the third week of the current month after DoT places the note before it for consideration.

At a high-level meeting at the PMO late Tuesday, it was also decided that the two telcos will frame a Voluntary Retirement Scheme (VRS) to reduce their employee strength, which will be followed by a reduction in the retirement age to 58.